STEP­PING UP TO THE CUT­TING EDGE

China Daily (Canada) - - ANALYSIS -

Vic­tor X. Liu could be the new face of China’s man­u­fac­tur­ing. The 42-year-old, who has a PhD in power elec­tron­ics from Vir­ginia Tech in Blacksburg, Vir­ginia, is far re­moved from the en­trepreneurs who used to turn out plas­tic toys and other in­ex­pen­sive prod­ucts on China’s south­ern and eastern coasts as the coun­try be­came the work­shop of the world.

He is chief ex­ec­u­tive of­fi­cer and pres­i­dent of Fo­cus­light Tech­nolo­gies, which is based in the Xi’an High-tech In­dus­tries De­vel­op­ment Zone in north­west­ern China.

The com­pany, which makes semi­con­duc­tor lasers that have ap­pli­ca­tions in 3D print­ing as well as med­i­cal uses in skin re­ju­ve­na­tion and in den­tistry, could be a model for the Chi­nese gov­ern­ment’s Made in China 2025 strat­egy launched in May.

The gov­ern­ment wants to fo­cus on 10 key sec­tors, in­clud­ing ro­bot­ics, in­for­ma­tion tech­nol­ogy, aerospace, mar­itime equip­ment and high-tech ship­ping, high-speed rail and new energy ve­hi­cles.

“This is the new econ­omy and about up­grad­ing the man­u­fac­tur­ing process. We are a high-tech com­pany mak­ing a prod­uct that is not only very com­pet­i­tive in China but also in the world,” he says.

Made in China 2025 is, in fact, the first 10-year phase of a 30-year pro­gram to up­grade China’s man­u­fac­tur­ing sec­tor. The aim by 2045 is for the coun­try to be­come a leader in in­no­va­tion.

China is not the only coun­try to launch such plans. The United States came up with its Na­tional Net­work for Man­u­fac­tur­ing strat­egy in 2013 to build 45 in­no­va­tion cen­ters to serve as re­gional man­u­fac­tur­ing de­vel­op­ment hubs.

In Europe, Ger­many has un­veiled its In­dus­try 4.0 plan aim­ing to build high-end smart fac­to­ries, the United King­dom has launched its Bri­tish Man­u­fac­tur­ing 2050 strat­egy and France its New In­dus­trial France plan fo­cus­ing on key in­dus­tries such as new energy and dig­i­tal­iza­tion.

That China should have a re­newed fo­cus on man­u­fac­tur­ing may seem at odds with the gov­ern­ment’s aim to re­bal­ance the econ­omy to­ward be­ing more ser­vices-led.

Chi­nese Premier Li Ke­qiang said in 2013 he saw de­vel­op­ing ser­vices as a “strate­gic mea­sure” to up­grade the econ­omy.

Cai Hong­bin, dean of the Guanghua School of Man­age­ment and also a mem­ber of the Na­tional Peo­ple’s Congress, China’s leg­is­la­ture, in­sists the 2025 plan is a timely re­state­ment of the value of man­u­fac­tur­ing to the Chi­nese econ­omy.

“Peo­ple say that ser­vices is good and man­u­fac­tur­ing is bad but I com­pletely dis­agree with this. I think if the man­u­fac­tur­ing sec­tor be­comes stronger, then the ser­vices sec­tor will grow from that.”

One of the rea­sons why man­u­fac­tur­ing has been down­played is that with la­bor costs ris­ing dra­mat­i­cally over the last decade, China has been un­able to re­main a low-cost pro­ducer.

Those re­liant on cheap la­bor have been forced to shift their pro­duc­tion to coun­tries such as Viet­nam, Cam­bo­dia and Bangladesh.

Liu at Fo­cus­light says China can no longer en­gage in this so-called race to the bot­tom.

Un­like China’s ear­lier pi­o­neer­ing man­u­fac­tur­ers, his com­pany is not de­pen­dent on cheap la­bor.

La­bor, in fact, only makes, up 15 per­cent of the com­pany’s di­rect prod­uct cost (when re­search and de­vel­op­ments costs are ex­cluded), com­pared with 60 to 65 per­cent for low­cost man­u­fac­tur­ing.

Of his 300 em­ploy­ees, around 130 have master’s or doc­tor­ate de­grees.

One of the aims of the 2025 strat­egy is to ad­dress weak­nesses in re­search and de­vel­op­ment, prod­uct qual­ity, de­pen­dence on low-end pro­duc­tion, in­for­ma­tion tech­nol­ogy and an in­abil­ity to con­nect with global pro­duc­tion and sup­ply chains.

The strat­egy seeks to ad­dress cer­tain key bot­tle­necks, which the gov­ern­ment says are ham­per­ing China’s eco­nomic de­vel­op­ment.

For ex­am­ple, China spent $220 bil­lion last year im­port­ing in­te­grated cir­cuits, more than it spent buy­ing oil around the world. The aim is for China to make such prod­ucts it­self.

Shaun Bres­lin, pro­fes­sor of pol­i­tics and in­ter­na­tional stud­ies at War­wick Univer­sity in the UK, says de­bates in China about mov­ing up the man­u­fac­tur­ing value chain date back to the 1980s.

“I don’t think it is a mat­ter of just say­ing it, you have to put a whole lot of other things in place so that in­no­va­tion can ac­tu­ally hap­pen. This brings up a whole se­ries of thorny ques­tions that go di­rectly back to the ed­u­ca­tion sys­tem and whether it al­lows suf­fi­cient free­dom of think­ing to cre­ate gen­uine in­no­va­tion.”

De­spite the re­newed fo­cus on man­u­fac­tur­ing, the sec­tor is no longer the main driver of the econ­omy.

It grew by only 6.1 per­cent in the sec­ond quar­ter of this year, down from 6.4 per­cent in the first quar­ter, and slower than the over­all rate of eco­nomic growth of 7 per­cent.

Mean­while, ser­vices — which al­ready com­prise a larger pro­por­tion of GDP than man­u­fac­tur­ing — grew by 8.4 per­cent in the sec­ond quar­ter, up from 7.9 per­cent in the first.

For Wil­liam Kirby, T.M. Chang Pro­fes­sor of China Stud­ies at Har­vard Univer­sity, re­gard­less of these def­i­ni­tions, the role model for China has to be Ger­many.

“Who would not want to be like Ger­many? Even with a rel­a­tively high-cost base, it man­ages to main­tain its man­u­fac­tur­ing ad­van­tage ex­traor­di­nar­ily well. It has an ex­cel­lent school sys­tem that places em­pha­sis on vo­ca­tional train­ing and has built a real strong base in this sec­tor. As a re­sult, Ger­many has man­aged to hang onto in­dus­tries the US has just failed to.”

Cai at Guanghua School of Man­age­ment does not be­lieve that China has any choice but to fo­cus on man­u­fac­tur­ing be­cause it could take sev­eral gen­er­a­tions be­fore it could com­pete with the US and the UK in ser­vices.

“China is at a very dif­fer­ent de­vel­op­ment stage com­pared with these coun­tries. It is still in the early to mid­dle stages of in­dus­tri­al­iza­tion. We are not in a po­si­tion to jump to a post-in­dus­trial so­ci­ety. If China loses its man­u­fac­tur­ing, it is los­ing the foun­da­tion on which fu­ture growth can be built.”

Con­tact the re­porter at an­drew­moody@ chi­nadaily.com.cn

Lu Hongyan and Du Juan con­trib­uted to this story.

PRO­VIDED TO CHINA DAILY

Staff mem­bers of Fo­cus­light Tech­nolo­gies, a maker of semi­con­duc­tor lasers in Xi’an.

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